An IRDA official told ET that the new finance minister wants to make insurance products an attractive investment option, without creating a situation that existed in the case of unit-linked plans. "So there may be some relief in terms of taxation," the official said.

The government had announced in the Budget that all insurance policies, except pension plans, will have to offer a cover of at least 10 times the annual premium to be eligible for tax benefits under section 80C and 10 (10D). While Section 80C allows a deduction on life insurance premium up to .Rs 1 lakh, Section 10 (10D) exempts maturity proceeds from tax.

"We are reviewing this position," a finance ministry official said, adding, "IRDA has already stated that this has affected senior citizens the most as the cost of insurance products has gone higher."

The move is expected to provide relief to the sagging insurance industry, which reported a 3% drop in the total premium to.Rs2.83 lakh crore for FY 2011-12, from .Rs 2.91 lakh crore in the previous fiscal.

The industry body for all life insurance companies, Life Insurance Council, attributed this drop to the change in regulatory road map, declining number of products and disappearance of pension business in the individual segment.

"The move to reduce the 10-year period is in keeping with the market sentiments. There is a huge segment of population which has irregular income and needs short-term premium paying policies," said SB Mathur, secretary-general, Life Insurance Council.